Question 2 (15 marks)

Herbert Ltd manufactures parts for battery electric vehicles. The details of the two parts and relevant information are given below for one period:

Product parts	Part X	Part Y
Output in units:	7,200	10,500
Cost per unit:
Direct material	$35	$45
Direct labour	$25	$20
Total machine hours	1,200	2,800
Number of production runs	24	35
Orders executed	120	140
Number of shipments	35	40

The data for activity centre, budgeted overhead cost and cost driver are as follows:

Activity centre	Budgeted overhead cost $	Cost driver
Machining	180,000	Machine hours
Set-up	59,000	Number of production runs
Inspection/Quality control	29,500	Number of production runs
Material handling	78,000	Orders executed
Delivery	15,000	Number of shipments
Total overhead costs	$361,500

Required:

1. Calculate the overhead rate based on traditional overhead allocation rate with output in units as the base. Determine the total cost to produce one unit of Part X and one unit of Part Y.

(4 marks)

2. Calculate the overhead rate for each activity centre based on activity-based costing techniques. Determine the total cost to produce one unit of Part X and one unit of Part Y.

(9 marks)

3. Using the data available, explain the differences between the unit overhead costs between a) and b) above.